3.5" should be fine with the stock driveline.
I wouldn't have shimmed the axle unless you took a reading of the driveline angles before installing the shim. Most folks drop the T-Case slightly instead as you may end up with the driveline angles equal and the same direction which will act poorly during acceleration. Rusty's make a drop crossmember which eliminates any loss in clearance.
With a single cardan shaft (1 u-joint on each end), the angles must be equal and opposite.
With a lift, you drop the rear axle and extend the driveline.
This can lead to problems with a standard slip yoke setup:
* Exceeding the length of the slip joint
* Exceeding the operational angle of the u-joints.
* Binding of the slip joint due to the angles involved.
Vibrations are genarally caused by:
* Incorrect driveline angles
* Unbalanced driveline
* Exceeding the operational angle of the u-joints.
Many XJ owners install a SYE and Double cardan shaft to eliminate vibrations without even looking at why; they just do it.
A SYE - Slip Yoke Eliminator, is a fixed yoke on the output of the Transfer Case. Because you eliminated the slip joint, you then need to install a drivehaft with a slip joint in the driveline.
Most folks install a driveline with a single and a double cardan joint, and a slip joint at the axle end (just like the front). The DC joint divides the 2 u-joints angles and produces a smooth rotation. You align it just as the front. A small bit of pinion down from straight line on the rear u-joint.
So a cheap version of a SYE would be a GM Yoke which you make fixed (I forget the P/N) and a front driveshaft. See the gojeep site for details on his SYE